Press Release No. 17/186

IMF Reaches Staff-Level Agreement on a Second Staff-Monitored Program with Somalia

May 22, 2017

• IMF staff welcomes the authorities’ continued commitments to policy and reform implementation despite daunting challenges.
• The Somali authorities and the IMF reach a staff-level agreement on the completion of the second and final review of the Staff-Monitored Program (SMP) and on a second SMP
• The IMF welcomes the authorities’ continued progress on currency reform

An International Monetary Fund (IMF) team led by Mohamad Elhage visited Nairobi, Kenya from May 15-19 to conduct discussions on the second and final review of the SMP and a follow-up SMP. The team met with the Somali authorities to discuss the latest economic developments and review implementation of reforms under the SMP.

At the conclusion of the visit, Mr. Elhage issued the following statement:

“In February 2017, the IMF Executive Board concluded the second Article IV Consultation with Somalia since 1989. At the same time, Somalia also completed the first review of the SMP, marking another important milestone in normalizing relations with international financial institutions. This SMP had been approved by the IMF’s Managing Director at the request of the Federal Government of Somalia (FGS) on May 27, 2016 (See Press Release No. 16/248). Cementing a further step toward normalization, in early February 2017, the Somali people held their second democratic and peaceful election since the end of the civil war, sending a strong, positive signal to the international community. We are encouraged by the pace of reforms to restore key economic and financial institutions, and welcome the authorities’ commitment to the reform agenda under the SMP.

“For 2016, the impact of the drought on economic activity was offset by strong performance in the telecommunication, construction, and service sectors. Economic growth is estimated at 3.2 percent. Due to higher food prices, inflation increased to 2.3 percent from 1.4 percent in 2015. For 2017, as the drought is expected to continue, growth is projected to decelerate to about 2.0 percent, and inflation to increase to above 3 percent. Government budgetary revenue and grants fell short of program projections in 2016, leading to liquidity strains and accumulation of arrears. The authorities took corrective measures to prevent new arrears starting in 2017.

“Performance under the SMP is broadly satisfactory, especially in light of the difficult domestic environment. By the end of 2016, all but one of the structural benchmarks had been observed and five out of the six indicative targets had been met. The target on new domestic arrears accumulation was breached and revenue performance was weak. For March 2017, all the quantitative targets and structural benchmarks were met. The authorities are encouraged to speed up and deepen agreed reforms, particularly by passing the needed laws such as the Communication Act.

“With the SMP having expired in April, the authorities requested a follow-up SMP to continue supporting macroeconomic stability and capacity development. Discussions on the new SMP followed the recent London conference on Somalia, during which donors reaffirmed their support, noting the successful election and progress on reforms, while also stressing the urgent need to further improve governance, and advance and broaden reforms. The authorities have updated their memorandum of economic and financial policies (MEFP) for 2017-19, in which they outline important reform agenda.

“To reach their economic and financial goals, we believe that it is essential that the authorities’ policies include the following structural measures:

• Continue to develop capacity and institutions . Despite recent progress, capacity to manage economic policies remain low and institutions are still weak. The IMF will continue to provide the authorities with the needed technical assistance and training in its areas of expertise.
• Implement a sound fiscal framework and advance public financial management reforms. Prudent budget preparation, renewed efforts to generate higher domestic revenues, and improved cash management and expenditure controls will improve budgetary execution and outturns.
• Increase domestic revenues. Broaden the tax base and enforce efficient collection of taxes and customs, based on existing laws.
• Jump start financial sector activity. Develop and implement a financial sector roadmap to address obstacles to increased financial intermediation. Improve the financial sector regulatory framework and enforcement mechanism. In this context, expanding the regulatory umbrella to the mobile money sector will be essential. We welcome the authorities’ continued progress on currency reform.

“During the visit, the team met with Central Bank Governor Mr. Bashir Issa Ali; Senior Advisor to the President’s office Mr. Balal Osman; Representative of the Prime Minister’s office Mr. Abdi Abdullahi; and other officials. The team also discussed the MEFP with Finance Minister Mr. Abdirahman Duale Beileh. In addition, the team met representatives from development partners. The team would like to thank the Somali authorities for their cooperation and the open and productive discussions.”